Comments on Burman et al.

1. Comments on Burman et al. A. Malani Brookings, 2.29.08

2. Burman et al. findings • Inefficiencies in health insurance markets • Tax breaks favor the rich • Eliminating breaks would increase uninsured

3. Inefficiencies • Disconnect between inefficiencies identified and health insurance • E.g., insurance limited effect on doctor-patient agency, may create own agency problems • Little discussion of incentives for innovation • Insurance may reduce DWL from using patents (Lakdawalla/Sood 2007, Newhouse 1992) • But insurance may enable “sickness externalities”: sickness has greater effect on innovation • Value of innovation depends on ability to ration innovation • Efficiency effect of distribution • Altruism externality (Medicaid, ER) • Provides context for free-riding: altruism is a public good

4. Tax breaks favor rich • If include social security, disparity falls: from 53-97% to 63-85% • Can’t look at tax policy in isolation: Medicaid, EMTALA, etc. • Medicaid may entail ~$150b in pure transfers • Income tax break costs $159-211b, including poor and excluding behavioral response • How much does more insurance help poor • Elasticity high (Gruber/Lettau 2004): -0.25, tax price on number of firms offering insurance, -0.7 on firm spending on insurance • How much does insurance increase health? How much do poor value health? • RAND Experiment: insurance improves health for most vulnerable; Doyle (2005): uninsured motorists have 1.5% higher mortality; Levy/Meltzer (2001) • Levy/DeLeire (2003): uninsured poor have higher housing prices than poor • If exclusion doesn’t benefit poor, then elimination hurts poor the least. Flat-of-the-curve literature suggests most to gain from raising prices for rich (if elastic)

5. Eliminating breaks increases uninsured • What is the proper counterfactual? • Congress would not just eliminate tax breaks (political market response) • Tax credit would be more fair: issue is cost of lower breaks for rich • Even if eliminate tax breaks, there are other safety nets (ER care) which would automatically expand • Is uninsured or health the proper outcome?

6. Comments on Helms • Causality v. reverse causality • Effect on health, utility of the poor • Tax expenditures grew from $140-$240b in 200-2006 • Is there a matching decrease in wage growth?

7. Context